Nearly a whole year on from his 2011 party conference speech on responsible capitalism and its talk of producers and predators, Ed Miliband recently introduced the next piece in his philosophical jigsaw – predistribution; on the eve of the 2012 Labour conference, Richard Bassford explores the concept
Having spent much of the last year arguing the economic assumptions of the past 30 years have been discredited and saying we need a fairer society, Miliband is now beginning to map exactly how we might get there.
It will be no surprise if his speech at this year’s conference elaborates on the currently ambiguous concept of predistribution.
The concept of predistribution has the potential to play a transformative role in the future direction of the Labour Party for three interrelated reasons:
• First, it offers a means of delivering key Labour goals such as social justice and equality without the need for traditional tax and spend policies that have been made increasingly difficult by high levels of public debt;
• Second, it provides a coherent and robust means of regaining economic credibility by substantially reducing the welfare budget;
• Third, in accepting the new economic and social reality of the post-crisis world it sets out a distinct alternative to, and signals the end of, the New Labour philosophy.
New Labour adopted a broadly a non-interventionist approach to the economy, regulating the market and its ‘wealth creators’ as little as possible. This approach tolerated the resulting inequalities as a symptom of aspiration, typified by large bank bonuses and soaring executive pay. The government essentially offset this unfairness by taxing the City and redistributing wealth to those on the losing end of the bargain using Tax Credits and welfare provision.
This ‘Faustian pact’ is best illustrated by Peter Mandelson’s often misquoted comment that New Labour were “intensely relaxed about people getting filthy rich…”; the oft omitted second half of that quote, “…as long as they pay their taxes”, illustrates how inequality was acceptable if the government was able to pursue redistributive policies.
A surprisingly simple alternative is this approach of predistribution, based on the work of liberal philosopher John Rawls and his theory of justice. Put very simply, it seeks to prevent the economy creating unfair outcomes in the first place – such as inequality of opportunity or wealth – rather than having governments take action to mitigate these once they have occurred.
The concept of the Living Wage illustrates this succinctly; instead of leaving employers to offer low pay that is subsidised by Tax Credits, they instead pay a fair wage in the first place.
Predistribution is also intrinsically fairer. It aims to create a fairer economy that reduces inequalities and the social problems they create rather than trying to mitigate their effect. Individuals are less reliant on the state to provide Tax Credits or benefits, reducing dependency and increasing empowerment. In a world in which low taxation is the new norm, predistribution provides an opportunity to keep taxes low, reduce the welfare budget and increase fairness.
This last point illustrates its potential importance to Labour’s electoral prospects because it allows them to regain credibility on the economy while increasing fairness. Predistribution offers the potential to cut spending while increasing the pay of the lowest in society.
However, its success is also dependent on managing the transition to an economy in which higher wages for the lowest paid, a more equitable distribution of pay overall, and a long-term investment-driven approach become the new norm.
Predistribution also signals New Labour may have become an anachronism. The economic, social and political assumptions on which it was based no longer reflect today’s reality. For example, it will be almost impossible to return to the consumer credit boom – which was used to offset low pay and maintain living standards – once further banking regulation is instituted in the UK and internationally.
Furthermore, the unquestioning primacy of the private sector, deregulation and the social inequalities this created are also no longer acceptable to the electorate. Even if they were, future governments will no longer have the means to pursue redistribution even if they had the desire to do so, a fact Ed Miliband acknowledged recently.
Looking ahead to the 2015 election the development of predistribution has consequences for the coalition. Much of the Conservative Party’s policies are predicated on the same principles as New Labour and the Third Way – localism, deregulation, and sharing the proceeds of growth; the Tories even pledged to stick to Labour spending plans back in 2008.
This makes sense; New Labour won three consecutive elections having appeared to have found an unbeatable electoral formula for the post-materialist Britain that was emerging. But the economic, social and political foundations on which New Labour was predicated have been fatally undermined by the financial crisis.
It poses an interesting challenge for where the coalition will turn come 2015. Debt and the deficit will remain a major constraint on public spending and limit the scope of any tax giveaways. Where this has happened – raising the threshold of personal income tax allowances – it could be characterised as pre-distributionary in that it is trying to make a fairer system without the need for redistribution.
This suggests the coalition may take an incremental and less explicit approach to a more responsible capitalism.
For Labour this presents both challenges and opportunities. At the moment, they are ahead of the game in understanding the emerging political economy. They have not yet articulated a compelling narrative of responsible capitalism and predistribution that captures the public imagination.
A commitment to the Living Wage – which is likely to be popular, easy to explain to the electorate and an example of predistribution – could yet prove to be the beginning of this process; however, if they are to have any chance of winning the electorate’s support, they must weave into this new narrative that most important of all New Labour values: aspiration.